Reinsurance Focus

Brown and Brown, Inc., an independent insurance and reinsurance broker, brought suit against Connecticut’s Attorney General in an attempt to resist the Attorney General’s subpoena seeking documents relating to an ongoing investigation into certain insurance practices under investigation for violation of the Connecticut Antitrust Act. Brown & Brown filed the action seeking to protect trade secrets and other confidential commercial and financial information. The trial court denied Brown & Brown’s motion for summary judgment, rejecting its claim that Connecticut General Statutes §35-42 allows a party to restrict disclosure of information to any person outside the Attorney General’s office.

Brown & Brown appealed the ruling, and the Attorney General’s office successfully sought transfer of the appeal to Connecticut’s Supreme Court. Finding that the trial court’s ruling denying summary judgment did not constitute a final judgment, the Court dismissed the appeal for lack of appellate jurisdiction, without addressing the merits of the parties’ arguments. Brown & Brown, Inc. v. Blumenthal, SC 17920, — A.2d — (Conn. 2008).

This post written by John Pitblado.

The Marsh & McLennan companies have reached a settlement agreement in a class action relating to allegations of improper “contingent commissions.” The proposed settlement is described in a Memorandum of Law in support of the preliminary approval of the proposed settlement. The court has entered an Order of preliminary approval, setting a a hearing on the final approval of the proposed settlement on December 15, 2008. The proposed settlement provides for a fund in the amount of $69 million, which will be distributed to class members. Marsh may use up to $5 million of the fund to resolve and settle claims of state officials representing policyholders who are potential members of the settlement class. In addition, Marsh may use up to $7 million of the fund to resolve and settle claims of individual plaintiffs in pending actions relating to the same matters that are at issue in the class action. Class counsel will apply to the court for fees and expenses of $14.5 million. In re Insurance Brokerage Antitrust Litigation, Case No. MDL 1663 (USDC D.N.J. Aug. 21, 2008).

This post written by Rollie Goss.

An Illinois district court judge has granted a group of reinsurance administrators’ motion to dismiss a complaint filed by Swiss Re. The Complaint alleged that the defendants (“Access Entities”), who managed and administered several reinsurance programs, breached the contracts by mishandling the claims they were responsible for administering, and that Swiss Re’s predecessors suffered losses as a result.

While the Court found meritless defendant’s arguments based on statutes of limitations and failure to join an indispensable party, the Court agreed that plaintiffs improperly “lumped together” three separate entities. Plaintiffs recognized that not all of the defendants were parties to each agreement, however, they argued that because the Access Entites were mere ‘alter egos’ of one another, they could appropriately be held liable for the acts of the others. The court disagreed, concluding that the Complaint did not adequately allege facts to support a finding of contract liability based on corporate veil piercing. As such, the Complaint was dismissed with leave to file an Amended Complaint. Swiss Reinsurance America Corp. v. Access General Agency, Inc., Case No. 07 C 3954 (N.D. Ill. Aug. 1, 2008).

This post written by Lynn Hawkins.

This action arose out of allegations that AIG and certain of its officers and directors violated securities laws by failing to disclose AIG’s participation in bid-rigging and contingent commission schemes (alleged in a complaint by New York Attorney General Elliot Spitzer against Marsh & McLennan Companies). Following a period of substantial discovery and a motion for class certification, lead plaintiffs sought to amend their complaint for a fourth time to add new and unrelated claims as well as new defendants based on AIG’s alleged write-down in February and May 2008 of more than $20 billion stemming from losses in its portfolio of credit default swaps written by its subsidiary, AIG Financial Products Corp.

The District Court denied plaintiffs’ motion to amend, finding that: (1) the claims to be added took place more than three years after the transactions in the Third Amended Complaint; and (2) lead plaintiffs knew the basis for the promised amendment before they filed their motion for class certification and before they defended over a dozen class certification depositions. In short, the court found that granting the motion would result in undue prejudice for the defendants as well as a potentially uncertifiable class. In re American International Group, Inc. Securities Litigation, Case No. 04-8141 (USDC S.D.N.Y. July 17, 2008).

This post written by Lynn Hawkins.

AlphaStar Insurance Group Ltd. (“AlphaStar”) (f/k/a Stirling Cooke Brown Holdings Ltd) was a group of companies which provided, among other services, reinsurance brokerage and intermediary services through companies in London, Bermuda and the United States. The companies collapsed and eventually declared bankruptcy, largely as a result of their involvement in the personal accident reinsurance market. Richard E. O'Connell, the chapter 7 trustee (the “Trustee”), commenced this proceeding against AlphaStar's former officers and directors, Arthur Andersen LLP, and several entities affiliated with Goldman Sachs. Goldman Sachs essentially controlled AlphaStar prior to its 1997 initial public offering. By 1999, special investigations revealed that the activities of the companies “were run or had been run by or associated with unsavory, dishonest people who had engaged in questionable transactions,” and that the businesses “were rife with fraud; its subsidiaries had made material misrepresentations to counterparties, who were thus entitled to rescind their contractual obligations; most of AlphaStar’s assets were impaired; its businesses were no longer viable; it could not afford to defend against the recent onslaught of litigation claims and it ‘faced a probable loss of staggering proportions.’” Prior management was terminated, but the litigation exposure arising out of their activities matured into a series of lawsuits and arbitrations with disastrous results. The thrust of the allegations in the Trustee's Amended Complaint was that the defendants, in light of these problems, used fraudulent and other improper means to continue AlphaStar's corporate existence to advance their personal interests to the detriment of AlphaStar. Another words, the Amended Complaint contended that the defendants should have pulled the plug instead of attempting to clean up the companies. The defendants moved to dismiss the Amended Complaint with prejudice.

The court concluded that the efforts to shift the losses of the companies to third parties was unsupported by any evidence, and that the claims were based upon information that allegedly was concealed by the defendants, but which the public knew. “In the end, his conscious misbehavior claim is impermissibly based on 20/20 hindsight, as he candidly admitted.” Motions to dismiss were granted, except that the motions to dismiss the avoidance claims were denied, and the motion to dismiss the contract claim was granted, but with leave to replead. In dismissing the trustee’s fraud based claims, the Court concluded that the Amended Complaint did not allege facts that gave rise to a strong inference of fraudulent intent, and that the motives alleged by the Trustee were insufficient as a matter of law, and failed to identify specific information that would support the inference of conscious misbehavior. The Court also dismissed the breach of fiduciary duty cause of action concluding that, under Bermuda law, no fiduciary duty existed. In re AlphaStar Ins. Group Ltd., No. 03-17903 (Bankr. S.D.N.Y., Feb. 19, 2008).

This post written by Lynn Hawkins.

In two prior posts (February 28 and October 1, 2007), we reported on discovery disputes in a case in which a reinsurer contended that it was not liable on trucking risks due to the improper placement of the risks by a broker. The reinsurer has now prevailed on summary judgment, having established that trucking risks could not be ceded to its reinsurance without specific permission or special acceptance, and that the broker did not seek such permission or acceptance. Scottsdale Ins. Co. v. American Re-Insurance Co., Case No. 06-16 (USDC D. Neb. May 6, 2008).

This post written by Rollie Goss.

Following the termination of an underwriting agency agreement, Temple Legal Protection sought to continue managing the run-off of the business originated under the agreement. The other party to the agreement contested the right of Temple to manage the run-off. An arbitrator found that Temple was not entitled to manage the run-off. On appeal, the Commercial Court found that the agreement did not provide a clear answer to the issue, but considering the agreement, custom and practice and other factors, the court concluded that while the arbitrator's analysis was faulty, the correct result had been reached. Temple Legal Protection Limited v. QBE Insurance (Europe) Limited [2008] EWHC 843 (Comm. Apr. 23, 2008).

This post written by Rollie Goss.

A reinsurance broker unsuccessfully sought an interlocutory appeal from a federal district court’s denial of its motion for summary judgment. The cause of action in the case was the Pennsylvania tort of negligent misrepresentation. It was alleged that the broker presented material misinformation to an Italian reinsurer that induced the reinsurer to reinsure various property and casualty risks in the United States. The broker argued on summary judgment that, under Pennsylvania law, this tort could not apply to it, since it was not a “professional information provider.” The court denied the summary judgment motion, and the broker subsequently moved to certify the question for immediate appeal to the United States Court of Appeals for the Third Circuit pursuant to 28 U.S.C. § 1292(b). The district court denied this motion, too. After noting that interlocutory appeals are generally disfavored, the district court found that there was no controlling question of law as to which there was a substantial ground for difference of opinion (a requisite of a § 1292(b) certification). Although the broker contended that Pennsylvania law does not impose liability for negligent misrepresentation on a reinsurance broker who negligently provides information to a potential reinsurer, the district court essentially determined that this was not a per se rule, especially given that part of the service of acting as a reinsurance broker is to provide information about the risk on which a reinsurer expects to be able to rely. The court found, therefore, that it was not clear that the broker’s proposed question was “controlling.” The district court also determined that an immediate appeal would not materially advance the ultimate termination of the litigation (another requisite of certification), observing that the case was already “on the eve of trial.” For these reasons, the motion for leave to appeal was denied. United National Insurance Co. v. Aon, Ltd., Case No. 04-539 (USDC E.D. Pa. Apr. 7, 2008).

This post written by Brian Perryman.

The English Commercial Court has ruled that Standard Life Assurance Ltd can not recover damages from its underwriters arising out of the improper sales of mortgage endowment policies, but could claim against its insurance broker, Aon. Standard Life subscribed to a policy with a liability cover of £75 million in excess of £25 million. The policy contained a provision permitting the aggregation of claims arising from an originating cause or source. The insured aggregated 97,000 small claims and sought to recover the full £75 million excess of £25 million. The underwriters claimed that even if the claims did arise from a single originating cause, the claims could not be aggregated because the policy schedule and slip contained the wording “excess: £25million each and every claim and/or claimant.”

The court agreed with the underwriters, finding that the policy did not allow for the claims to be aggregated together, meaning the excess limit could not be reached. Specifically, the court found no “plausible purpose for the inclusion of the words ‘and/or claimant’ in the excess provision in the slip other than the attempted achievement of a per claimant excess.”

Prior to the court’s ruling, Aon brought its own negligence claim against Reynolds Porter Chamberlain (“RPC”) as a third party to the proceedings. Aon’s claim against RPC argues that the firm did not recognize that the wording of the policy meant the claims could not be grouped together. Standard Life Assurance Ltd. – and – Oak Dedicated Ltd. – and – Aon Ltd., Reynolds Porter Chamberlain, [2008] EWHC 222 (Comm. Feb. 13, 2008).

This post written by Lynn Hawkins.

AIG has settled issues with the Pennsylvania Department of Insurance arising out of finite reinsurance and bid-rigging allegations, agreeing to pay over $9 million in penalties and costs. This is the largest penalty ever levied upon an insurer by the department. The finite reinsurance issues arose out of one of the transactions included in the recent criminal conviction in Connecticut. New compliance measures are included to ensure accurate financial reporting and increased transparency of commission payments to agents and brokers. Details of the settlement are generally set out in a press release issued by the Department, and in a detailed settlement agreement.

This post written by Rollie Goss.